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Childcare FAQ

Any employee, including sole proprietors, partners and more than 2% shareholders in a Subchapter S corporation. However, most plans will find it difficult to pass IRS discrimination testing if these individuals (or their family members) are permitted to participate (see Q10).

Expenses for a qualifying individual (See Q6) that enable the employee to be gainfully employed. The employee’s spouse must also be gainfully employed, a full-time student or incapable of self-care. This includes such items as:


-Family Day Care

-Child-Care Centers/Dependent Care Centers

-Custodial Care

-Backup or Emergency Care

-After-School Programs

-Summer Day Camp (no overnight stays)

Recurring payments can be sent directly to the care provider. A pre-funded debit card may also be issued if the employee’s care provider accepts electronic payments. Otherwise, the employee may submit a claim for reimbursement.

Account balance, claim payment and other information can be accessed online or through our mobile app.

No. If the IRS rules are followed, they are not subject to income tax or employment taxes (FICA tax). The employee may not double-dip by claiming a Child Care Tax Credit for child care paid by an employer through the DCAP.

A dependent who has not attained age 13 or a dependent or spouse who is physically or mentally incapable of caring for himself or herself and has the same principal residence for more than half the year.

$5,000.00 ($2,500.00 for married individuals filing separately). This limit is the same no matter how many dependents the employee has. Other limits may apply to the employee depending on that employee’s earned income.

Contributions/premiums are pulled from the employer’s designated business account on a schedule established by the employer and credited to the employees’ dependent care accounts no less frequently than monthly.

An employee can only receive up to the balance in their account. In other words, the account can never be overdrawn. Any amounts that have not been used by the employee are returned to the employer at the end of the year.

Yes. The plan may not discriminate in favor of owners (and their family members) or any employee who has compensation in excess of $135,000.00 for 2022. If your company is not taxed as a Subchapter S corporation, sole proprietorship or partnership and employs fewer than 100 employees, please contact an Advantage Administrators benefits consultant about the potential advantages of setting up a Code Section 125(j) ASIMPLE@ plan instead.

The amount elected through the cafeteria (section 125) plan when combined with the amount available through the DCAP cannot exceed the $5,000/$2,500 annual limit.

The employer reports DCAP amounts on the employee’s Form W-2 in box 10.

The employee must file Form 2441 with their income tax return.

The employer can provide the full maximum benefit amount or prorate the benefit based on the amount of time remaining in the year.

Advantage Administrators charges a monthly fee for each participant but does not charge a document fee or other set up fee. Please contact an Advantage Administrators benefits consultant for a fee proposal.

DISCLAIMER: This is a general description of the features of a Dependent Care Assistance Plan under IRS Code Section 129 and is not intended to provide legal or tax advice or to describe every rule, exception or benefit.

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